Publication: The Straits Times, p C20 Date: 10 January 2009 Headline: Satyam of S'pore is possible: Experts

1 BY MICHELLE TAY

A COMPANY in Singapore could conceiv- ably suffer a massive corporate fraud on the scale of the deception committed at Satyam Computer Services - dubbed the

Enron Accounting of India. experts say that safe- Satyam of S'pore guards built into the corporate regulatory framework here simply minimise the risk that a Satyam of Singapore could emerge.

And auditors told The Straits Times that financial irregularities generally arise as a result of ethical breaches, like straight-out dishonesty, rather than poor

is possible: Experts corporate governance.

They also argue that auditors can do No safeguards are foolproof if management is crooked

only so much to ensure the books bal- ance.

"Fraud can happen anywhere, even if regulatory frameworks and safeguards are robust, and ultimately, it depends on the individual to discharge his duties hon- estly," said Mr Kon Yin Tong, a partner at Foo Kon Tan Grant Thornton.

A former auditor at one of the Big Four accounting firms, who now runs his own advisory firm, agreed: "Creative account- ing is everywhere. It's not just that it can happen here - it is happening."

In fact, it has happened in the past. In 2005, for instance, electronic waste

recycler Citiraya was found to have creat- ed millions of dollars of artificial transac- tions to grossly overstate its turnover and profit figures between 2003 and 2005.

And today, there is the ongoing case of the "round- tripping" deals at semicon- ductor firms Advance Modules and the NEL Group, allegedly designed to cover up fake transactions.

Corporate fraud is now a major talking point after Satyam founder Ramalinga Ra- ju confessed on Wednesday to his board of directors to inflating profits for years with "fictitious" assets and non-existent cash.

What started as an attempt cover Dr Jitendra V. Singh, dean and Shaw not have signed off on the accounts for ment policies and systems, and the organi- up a "marginal gap between actual Operat- Foundation Chair of the Nanyang Busi- the last several years." sation's structure for fraud risk manage- ing profit and the One reflected in the ness School, said this case "clearly re- Experts say the regulatory framework ment. book of ~ ~ c o u n t s " swelled to "unmanage- veals failures" on more than one level. able proportions as the size of the compa- here includes robust corporate govern- Lawyer Robson Lee, partner at Shook ny operations grew significantly", he "First, there is the intent to commit ance guidelines requiring independent di- Lin & Bok, said: "If these guidelines are said. fraud on the part of at least some mem- rectors and board members of companies consistently adhered to and effectively im-

~ b ~ ~ t US$^ billion (~$1.48 billion), or bers of management. Second, it seems to be on an external audit committee. plemented ... it would create significant ob- 94 per cent of the cash listed in assets at crystal clear that the auditors were not do- The committee's functions include re- stacles for management to perpetrate ... the end of its second quarter in Septem- ing their job," he said. viewing financial results and the adequa- the concealment of material irregularities ber, was fictitious. "If they were not satisfied, they should cy of the internal controls, risk manage- in the company's operations."

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He added that an effective whistle- blowing policy that accords full protec- tion to informant employees will foster a culture of corporate integrity within the organisation - thereby serving as extra de- terrence to any employee who intends to defraud the company.

But auditors warn that frameworks work better in theory than in practice.

The head of a prominent audit firm here said although Singapore's updated code of corporate governance includes a call for listed companies to set up a whis- tle-blowing policy, there is no way of con- trolling how it is issued, or ensuring that all employees see it.

"In real life, the rules are a lot of form and no substance," he quipped.

Although an auditor can, under the Companies Act, report a matter to the Fi- nance Minister if it believes an offence in- volving fraud or dishonesty has been com- mitted at a listed company, it is not the primary job of the auditor to go sniffing around for fraudulent practices, said in- dustry experts.

Associate Professor Foo See Liang of the School of Accountancy at Singapore Management University said: "The audi- tors' duty is to express an opinion on the financial statements. An audit engage- ment is not the same as a fraud investiga- tion engagement, where uncovering fraud is the focus.

"Unless there are unusual circumstanc- es to alert the auditors, such well-con- ceived frauds by senior management are not easily detected."

Satyam's auditor, Pricewaterhouse- Coopers, has released a statement defend- ing its role: ,"The audits were conducted by Pricewaterhouse in accordance with applicable auditing standards and were supported by appropriate audit evi- dence. "

Mr Bobby Chin, chairman of the Singa- pore Totalisator Board and previously KPMG Singapore's managing partner, said: "No system of controls, frameworks and safeguards is 100 per cent foolproof to prevent such occurrences, especially where there is management fraud."

The Singapore audit firm head agreed: "If you have a determined effort by crook- ed management to cook the books, there's no way for anyone going from the outside in to immediately fish it out." michtay&ph.com.sg